William Van Rooy v. Minister of National Revenue, [1992] 2 CTC 2776

Brulé, T.C.C J.:—This appeal involves the taxpayer's 1973 taxation year. The Minister of National Revenue ("Minister") assessed the appellant and included penalties on the basis that he failed to report income of $60,000 while the appellant maintains no such income was earned.

Facts

Without going into all the details suffice it to say that the appellant was involved in a diamond scheme in which he collected funds from certain people and in conjunction with others delivered these funds, or part thereof, to people in Amsterdam. He hoped as a result of his participation he would be assured a profit.

The Minister gave to the Court a notice of intention in which certain material would be relied upon indicating, inter alia, that the appellant in this diamond operation had been convicted of tax evasion.

When this matter first came on for hearing the Minister argued that as a result of the conviction, the doctrine of issue estoppel was applicable with respect to the failure of the taxpayer to report $60,000. of income. The Tax Court in a decision ([1987] 1 C.T.C. 2437, 87 D.T.C. 299) held that issue estoppel did not apply. This decision was then appealed to the Federal Court of Appeal who ruled that issue estoppel did not lie because of a lack of identity of issue. The quantum of suppressed income was in doubt in the criminal proceedings ([1988] 2 C.T.C. 78, 88 D.T.C. 6323).

Appellant's position

In his evidence the appellant maintained that all the money he collected was invested in the diamond scheme. He said that he received no benefit as the whole adventure was a fraud and he personally lost money. His role was merely that of an agent.

Respondent's position

For his part the Minister said that the specific facts concerning the scheme remained uncertain because of the conflicting stories given by the appellant. An assessment had been made and only the oral evidence of the taxpayer was presented. There were no material documents given to the Court and no corroborating evidence to his story. As a result the Minister contends that the assessment should stand.

Analysis

Once an assessment has been made the onus lies with that person being assessed to destroy the allegations. The authority for this may be found in the case of The Queen v. Wellington Taylor, [1984] C.T.C. 436, 84 D.T.C. 6459 wherein Rouleau, J. said at page 439 (D.T.C. 6461):

As I have stated, the assessment shall remain valid until it is found to be erroneous by the Court. This principle is enunciated in Morch v. M.N.R., [1949] Ex. C.R. 327, [1949] C.T.C. 250, 4 D.T.C. 649. On an appeal, the burden is on the taxpayer to overturn the assessment. It is deemed valid because of subsection 152(8) of the Act; it is the taxpayer's appeal and he must therefore show that the impeached assessment is an assessment which ought not to have been made; and it follows that the facts, almost to exclusivity, are within the taxpayer's knowledge. This basic principle dates back to 1925 as was clearly set out in the case of Anderson Logging v. The King, [1925] S.C.R. 45, [1917-27] C.T.C. 196, 52 D.T.C. 1209.

While the appellant gave a long story about all of his activities many of the episodes were almost unbelievable. For example he said that he had bought an original Rembrandt painting for $600.

The principal endeavour for the appellant was to make a prima facie case refuting the assessment, at least to the extent that the onus would be placed on the respondent to prove such assessment. Such was not done. The respondent relied on two deposits made to the appellant's account and shown to the Court as Exhibits R-2 and R-3. The only explanation given under cross- examination was that such were part of his 1973 income tax return. An inspection of this return shows only some paintings sold at a loss. Some of which, including a Rembrandt and a Raphael, were sold at ridiculously low prices. Presumably the $60,000 was a part of these sales but no details were provided to relate such sales to the deposits shown by the respondent.

While this case is different from most appeals of assessment the appellant cannot deny there was evasion of tax. The Federal Court of Appeal, as set out above, said that the quantum suggested in the criminal proceedings could not be used in the civil matter as such was in doubt. The Court, however, is not satisfied that a proper explanation has been given why the $60,000 should not be included in the taxpayer's 1973 income, nor why penalties should not be imposed.

Appeal dismissed.